CFO Studio Magazine - Curt Allen, CFO, Subaru

COVER STORY T he personal history of Curt Allen, chief financial officer for Subaru of America — 33 years of marriage to his wife and 35 years working for Subaru — shows him to be a man of great loyalty. Decisions about layoffs, hiring, and other human resources issues are filtered through that same sensibility. In the second half of the 1980s exchange rates hit the Japan-based company’s profitability hard. “If the exchange rate goes into a negative position for a long period of time, then you have to learn how to survive that cost structure, as a company,” says Allen. “It takes a while.” Subaru’s demise was widely expected, but “We learned how to survive and it made us stronger as a company going forward.” In that period, Subaru of America went through three waves of layoffs, requiring tougher and tougher choices — “the worst times I ever had in my over 30 years here,” he says. What Allen learned in the aftermath was to take great care with hiring. He believes a public accounting background gives a person the ability to work productively with various operating departments. “You understand the numbers, and at the same time you understand the operations of the business.” He himself joined Subaru after five years at Deloitte Haskins & Sells. He received his accounting degree at Rutgers University. A New Jersey CPA, Allen earned a Masters at the University of Pennsylvania. Allen views himself — and asks the operating departments to view him — as a consultant to their business operations. And the people who work for him should be “not just advising non-finance people on the financial impact of their decisions, but really being strategic partners.” Allen says the role he takes is to create the environment internally to generate ideas. “You constantly have to tweak your processes to make sure you’re staying on top of the business.” Of Profitability & Loyalty Allen, though, is not one to take credit for projects to which multiple team members contributed. (The only time he seems comfortable saying “I” is when he talks golf. And then you’ll learn that he started playing at 11 and parred the first hole he ever played. He’s had a single- digit handicap ever since high school.) Allen, 61, spoke with CFO Studio in late October, not long after Subaru of America raised its 2014 sales projection, saying it expected to sell more than 500,000 vehicles in the United States for the year (the actual figure was 513,693). Sales in 2013 exceeded 400,000 vehicles for the first time, and in 2012 exceeded 300,000 vehicles for the first time. Clearly pleased with the reception of the 2015 Legacy and Outback, Allen speculates that 600,000 units sold in 2015 would be achievable if not for some “plant capacity issues.” Pricing for the “Win-Win-Win” There is a fine balance to be found in vehicle pricing, as Allen knows. He oversees the department that analyzes competitive vehicles and considers marketplace pressures and easing before deciding on a fair price for every model Subaru sells. Its sole U.S. plant, a separate entity called Subaru of Indiana Automotive, Inc., in Lafayette, IN, builds almost 200,000 of the vehicles Subaru sells in the United States. The rest Subaru of America imports from Japan, where parent company Fuji Heavy Industries is headquartered. Overall, says Allen, the goal is to keep the need for sales incentives low and also create a profit for the manufacturer and retailer. Also in this balancing act: the car’s competition in the marketplace. “For [manufacturer, retailer, and customer] to be happy, everybody’s given up a little bit.” So vehicle pricing is an attempt to create a win-win-win situation, says Allen. “It’s almost like what you hope for out of a baseball trade, where everyone improves.” In pricing a new car, Allen and his group consider competition sets. For the 2015 Legacy, that set included the Ford Fusion, Honda Accord, Hyundai Sonata, Mazda 6, and the Toyota Camry. All- wheel drive vehicles cost more to make. But all-wheel drive is a Subaru standard, so, says Allen, “We know there is going to be a premium.” Shaving that premium to fit the market is the job of pricing. And it seems more often than not Allen and his team get it right. The 2015 Legacy as well as the Outback andWRX were awarded best resale value in their segment, by Automotive Lease Guide (ALG), a company that forecasts future values. “For that you have to be priced right and offer minimal incentives,” says Allen. Incentives: Like a Drug Beyond competitive pricing, incentives move automobiles. Dealers (called “retailers” at Subaru) receive incentives, as do salespeople and customers. Subaru’s national incentive programs run side-by- side with regional ones. In the company’s 12 zone offices and two independent regions there could be separate permutations of those programs, too. Allen oversees the multiple offers, which are based primarily on inventory levels and sustainability, by which he means that retail pricing should stay consistent throughout the year. At the beginning of each month in the over 600 retail offices, every salesperson wants to know what the incentive is to sell a particular model. Subaru sells close to 90 different model and option combinations for each year, “So you have this gigantic spreadsheet,” says Allen. “On the first day of the month, we have it on the Subaru intranet.” Allen and his team analyze the cost of the programs, which include cash 10 WWW.CFOSTUDIO.COM 1st QUARTER 2015 Allen’s sense of fairness drives decisions